Bangladesh Bank Training Academy Journal

Abstract

The principal objective of this paper is to investigate the price transmission mechanism of commodity ‘rice’ between Bangladesh and her major import destination country, India due to its importance in ensuring food security in Bangladesh. So, an in-depth study about the degree of market integration and price transmission mechanism in the domestic rice market is essential for the policy makers, rice producers and other rice value chain role players since it aff ects their decisions which in turn infl uence their profi tability and determine the overall supply in the rice market of Bangladesh. To address the mentioned issue, this study engages both Johansen & Juselius (1990) cointegration technique and innovation accounting approach to critically examine the price transmission process of rice price from Indian market to Bangladeshi market covering the time period from July, 1998 to May, 2015. This paper fi nds that the price shock in Indian rice market induces price change in the Bangladshi rice market both in short run and long run. The fi ndings strongly suggest to consider the impact of external forces in stabilizing the domestic rice price of Bangladesh along with the role of existing internal factors.